Avoid Financial Paralysis by Analysis

Let me guess. You want to do something to better your financial situation, but you haven’t taken action yet because you’re still researching your options? You are not alone. When it comes to money, we are notoriously meticulous and want to make sure we’re making the right decision. It only makes sense because we’ve worked so hard for the little money we have that the idea of making a poor decision is frightening. But there is a problem with this mindset when it goes too far.

What often happens is that we spend so much time trying to find the single best solution that the opportunity cost of delaying the decision often outweighs the benefit of finding that single best option. This is paralysis by analysis. It is when you spend weeks, months, or even years putting off a major decision while you examine every option available, only to miss out on most, or all of the benefits that could have been realized if you just chose any option from the beginning.

A Few Examples

This is quite common when it comes to finance. We are bombarded with choices. Deciding how much to invest, how much put toward debt, what bank to use, what credit cards to use, what stocks or funds to invest in, what tax strategies to implement, and the list goes on. For every seemingly simple choice, there are often hundreds of possibilities. Just look at the difficulty in selecting a savings account. You have local banks, dozens of online banks, and then you have to look into what the interest rates are, what fees there may be, what features you may or may not need, and before you know it you’re putting off saving for weeks or months while you fret over finding the absolute best option.

It is even worse when you start talking investments. How many times have you said you were going to start, or even simply increase your 401(k) contributions only to put it off for months or a year while you look at all of the various investment choices, try to figure out when the best time to invest would be, and get confused by fees? Even if this isn’t you, I have a few friends who have done this. One guy I know stopped contributing to his company 401(k) a few years ago because money got tight. That’s understandable, but about six months after stopping those contributions he came to me for advice about where to start putting that money back to work. So I gave him a few suggestions. A few months later he comes back and admits he still hasn’t started and is still “learning about the market” and wants to make sure he makes a good investment. I insist he just starts putting that money into the account, even if it’s just in the cash fund, but there’s no sense in waiting.

Guess what? It is almost three years later and he still hasn’t started back up with his 401(k). The excuse? He’s still unsure of the best possible way to invest that money. So he has gone three years without putting a dime away toward retirement, missed out on reducing his taxable income, and missed out on putting that money to work. That is three years that can never be given back. The time is gone. But he still continues to hem and haw thinking that by making the single best decision it will be better than making just an average decision.

Pick an Option and Run With It

Instead of wasting your time constantly analyzing your options, just do some basic research and then go with it. You can always change later and there’s virtually nothing set in stone, so why worry so much about it? If your goal is to finally open an online savings account and start putting money into an emergency fund, don’t waste a week trying to pick the absolute best bank. Because you know what usually happens? You tell yourself you’ll be ready next week. But then next week turns into next month. And next month turns into six months, and before you know it you’ve wasted a year and you’re even further behind than you were when you started.

Seriously, if you end up with a bank that is ten basis points less than another, what is the worst that can happen? I’ll tell you. You’ll probably miss out on less than ten dollars in interest over the course of a year. When you think about it that way, is it worth delaying weeks, months, or a year just to squeeze out a couple extra dollars? It isn’t the end of the world if the bank you choose happens to have a slightly lower rate or changes their fees along the way. Remember, you can always simply change banks later, and that’s far better than doing nothing.

The same can be said when it comes to anything else. If you need a credit card, you certainly want to seek out some of the best options so you can get cash back, rewards, or a great interest rate. But after narrowing it down to a few options, just pick one and go with it. And when investing, the same general rule applies. You’re probably not out there putting everything on the line on a single stock and instead using diversified funds of some sort, so get your plan and go out there and invest. Who cares if the fund you end up in has fees a fraction of a percent more than another one. Who cares if it underperformed its benchmark by 0.5 percent last year. The fact that you invested the money at all will far outweigh the opportunity cost of waiting while you try to squeeze every last penny from your decision.

Something is Better Than Nothing

If you take anything away from this post, know that something is better than nothing. If you want to save money, just pick a bank and start saving. You can always move your money later, but taking action and putting that money to work, even if it isn’t the absolute best option available, is better than doing nothing at all. Don’t be like my friend who has let three years go by while he sat on the fence unsure of what to do. Time gets away from all of us, even with the best intentions. So don’t let tomorrow turn into next week, and next week turn into next month, or next month turn into next year. It’s time to grab the bull by the horns and put your plan into action. The worst that can happen is you miss out on a few bucks, but that’s far better than missing out on much more simply because you became paralyzed by so many choices.

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

I think part of the problem right now is that people just don't know how to distinguish between the right choice and the wrong choice to head with their finances. The headlines of the news have crippled the way people think about finances.

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